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Business and Economics > Finance: General

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Cover Selected Issues Papers
Determinants of Sovereign Spreads in The Bahamas: Bahamas
Josef Platzer
To analyze Bahamian sovereign spreads, a fundamentals-based model is estimated using data on emerging market economies. The main findings are: first, while both domestic and global covariates are important determinants of spreads, a sizeable effect comes from the interaction of global risk aversion and a country’s risk rating. Second, inclusion in the EMBIG index (Emerging Market Bond Index Global) is a significant driver for emerging markets. The spreads in The Bahamas would have compressed by 56 basis points compared to other countries with similar fundamentals if the archipelago were included in this index.
Keywords:
The Bahamas; Sovereign Spreads; EMBIG; emerging market bond Index Global; EMBIG index; spreads in The Bahamas; IMF staff calculation; Western Hemisphere department; Emerging and frontier financial markets; Credit ratings; COVID-19; Current account balance; Global
Cover Staff Discussion Notes
Navigating Trade-Offs between Price and Financial Stability in Times of High Inflation
Romain Bouis
,
Damien Capelle
,
Giovanni Dell'Ariccia
,
Christopher J. Erceg
,
Maria Soledad Martinez Peria
,
Mouhamadou Sy
,
Ken Teoh
, and
Jerome Vandenbussche
Trade-offs between price and financial stability can occur when inflation is above target and financial stress is rising. Use of central bank liquidity tools and other financial stability policies may, under some circumstances, allow central banks to maintain their inflation fighting stance, while addressing financial stress. However, challenges in deploying these tools and specific country characteristics may hinder central banks’ ability to achieve both price and financial stability. In such circumstances, central banks should account for financial stress increasing downside risks to activity, allow for slower disinflation using monetary policy flexibility, and communicate that deviations from the medium-term inflation target are temporary. Countries with weak central bank credibility, high exposure to exchange rate movements, and limited fiscal space face extra challenges in managing these trade-offs and might have to rely on foreign exchange interventions, macroprudential policies, capital flow measures, and international liquidity tools.
Keywords:
Monetary Policy; Financial Stability; Policy Coordination; monetary policy tightening; liquidity from the discount window; monetary policy flexibility; resolution framework; asset purchase; Financial sector stability; Price stabilization; Inflation; Liquidity; Global
Cover High-Level Summary Technical Assistance Reports
Bangladesh: Disaster Risk Financing
Suphachol Suphachalasai
,
Barry Maher
,
Danielle N Minnett
, and
Junko Mochizuki
Disasters have posed significant economic costs to Bangladesh, and financing needs associated with disaster response are estimated to be substantial. Bangladesh has put in place fiscal mechanisms, social protection programs, and financial instruments to respond to natural disasters. While the country has adequate resources for recurrent disasters, financing gap for moderate and severe disasters remains large. The government could strengthen fiscal policy mechanisms to help close the financing gap and make social programs more shock-responsive and scalable in times of disaster. Bangladesh could also better leverage financial sector instruments to enhance disaster resilience.
Keywords:
Disaster risks; public finance; fiscal policy; social protection; financial instruments; financing gap; fiscal policy mechanism; climate risk fund; cash support program; funding need; Disaster aid; Natural disasters; Financial sector
Cover High-Level Summary Technical Assistance Reports
Suriname: Financial Stability, Monetary Policy, and Central Bank Communication
Petr Jakubik
and
Marek Petrus
The technical assistance mission evaluated the Central Bank of Suriname’s (CBvS) communication on monetary policy and financial stability to enhance transparency, consistency, and stakeholder engagement. Recommendations include institutionalizing structured decision-making with fixed schedules for Monetary Policy Advisory Committee (MPAC) and Financial Stability Advisory Committee (FSAC) meetings, followed by policy-setting Executive Board sessions. These efforts should be supported by forward-looking publications, such as the Monetary Policy Report (MPR) and Financial Stability Report (FSR). Enhanced communication strategies, including proactive outreach and capacity-building programs, aim to align CBvS practices with international standards, strengthen credibility, regain public trust, and support its mandate for price and financial stability.
Keywords:
monetary policy; financial stability; central bank communication; decision making frameworks; transparency; stakeholder engagement; FSAC meeting; CBvS's communication; decision-making framework; Financial sector stability
Cover Technical Assistance Reports
Curaçao and Sint Maarten: Technical Assistance Report; Financial Stability Report
International Monetary Fund. Western Hemisphere Dept.
and
International Monetary Fund. Monetary and Capital Markets Department
The IMF Caribbean Regional Technical Assistance Centre (CARTAC) conducted a technical assistance (TA) mission in Curaçao and Sint Maarten from October 3 to October 12, 2023. The mission aimed to support the Central Bank of Curaçao and Sint Maarten (CBCS) in enhancing its Financial Stability Report (FSR) by improving financial stability assessments, strengthening the analytical framework, and refining credit risk modeling. The mission reviewed the latest available FSR and provided recommendations to improve its structure, analytical depth, and communication strategy. A key focus was on developing sectoral credit risk models to assess the impact of macroeconomic conditions on non-performing loans (NPLs) and overall financial stability. The mission also introduced the Bayesian Model Averaging (BMA) approach as a methodology for addressing model uncertainty and provided an initial estimation framework for sectoral credit risk modeling. In addition, discussions covered broader aspects of financial stability, including stress testing, interconnectedness, emerging risks such as climate and cyber risks, and the integration of financial stability indicators with regulatory frameworks. Several recommendations were made to further enhance the FSR and its underlying framework. The text of the report should be streamlined to avoid repetition and focus on key financial stability risks and vulnerabilities. The analytical toolkit should be made more forward-looking by incorporating stress testing results based on macroeconomic scenarios. The report should provide clearer communication of regulatory frameworks and financial stability indicators across all segments of the financial system, including banks, insurance companies, and pension funds. The CBCS should also strengthen its data management framework by consolidating all financial stability-related data into a centralized data warehouse and exploring the feasibility of establishing a credit register for more granular risk assessment. To ensure more effective communication, the FSR should be actively promoted as the CBCS’s flagship financial stability publication, supported by cross-departmental discussions during its development. The external communication strategy could be enhanced by organizing press briefings, media interviews, and online dissemination efforts. Additionally, emerging risks such as climate change and cybersecurity should be consistently covered in future reports. These enhancements will help improve the quality, transparency, and forward-looking nature of financial stability assessments in Curaçao and Sint Maarten, strengthening macroprudential oversight and risk management in the region.
Keywords:
Financial Stability; Financial Stability Report; Systemic risk; Analytical toolkit; Credit risk modelling; Curaçao and Sint Maarten.; CBCS data management system; credit risk model; market risk analysis; CBCS President Mr. Richard Doornbosch; bank solvency stress test result; Financial sector stability; Stress testing; Credit risk; Nonperforming loans; Financial stability assessment; Caribbean; Global
Cover Technical Assistance Reports
Turks & Caicos Islands: Technical Assistance Report-Financial Stability Report Review, Credit Risk Modelling, and Stress Testing
International Monetary Fund. Western Hemisphere Dept.
and
International Monetary Fund. Monetary and Capital Markets Department
The IMF Caribbean Regional Technical Assistance Centre (CARTAC) conducted two technical assistance (TA) missions in the Turks and Caicos Islands (TCI) between January and March 2024. The missions aimed to strengthen the financial stability framework of the Turks and Caicos Islands Financial Services Commission (TCIFSC) by enhancing credit risk modeling, stress testing, and the Financial Stability Report (FSR). The first mission, held from January 29 to February 2, 2024, focused on reviewing the latest Financial Stability Report to enhance its analytical depth and clarity. The mission also worked on developing sectoral credit risk models to assess the impact of macroeconomic scenarios on bank non-performing loans (NPLs). In addition, training was provided to TCIFSC staff on advanced credit risk modeling techniques. The second mission, conducted from March 11 to 15, 2024, focused on building a multi-factor, multi-period bank solvency stress testing tool tailored to TCI’s financial sector. The mission reviewed available macroeconomic and regulatory data to refine stress test assumptions and conducted training sessions for TCIFSC staff on implementing the new framework. An illustrative stress test was performed using December 2023 data, incorporating baseline and adverse macroeconomic scenarios. The calibrated macroeconomic models considered key risks, particularly those associated with tourism-dependent credit exposures and external economic shocks. The mission provided several key recommendations to enhance the financial stability framework in the Turks and Caicos Islands. The Financial Stability Report should be further developed to improve risk communication and streamline its content. Institutionalizing regular stress testing exercises was recommended to improve the monitoring of financial resilience, while expanding financial data collection and management through the development of a centralized financial stability database would support ongoing macroprudential analysis. The mission also emphasized the need for increased coordination between the TCIFSC and the Ministry of Finance for scenario development in stress testing. The implementation of these recommendations will significantly enhance the monitoring of financial stability in the Turks and Caicos Islands and support efforts to strengthen macroprudential oversight and systemic risk management.
Keywords:
Financial stability; Financial Stability Report; Systemic risk; Stress testing; Credit risk modeling; Turks and Caicos Islands.; TCIFSC financial stability report; bank solvency ST tool; TCIFSC managing director; TCIFSC's FSR; Financial sector stability; Credit risk; Nonperforming loans; Loans; Global
Cover Technical Assistance Reports
Suriname: Technical Assistance Report; Financial Stability, Monetary Policy, and Central Bank Communication
International Monetary Fund. Western Hemisphere Dept.
and
International Monetary Fund. Monetary and Capital Markets Department
At the request of the Central Bank of Suriname (CBvS), this technical assistance (TA) mission assessed and provided recommendations to enhance the transparency, consistency, and stakeholder engagement of monetary policy and financial stability communication. Strengthening communication in these areas is critical to reinforcing the CBvS’s credibility, aligning its practices with international standards, and supporting its mandate for price and financial stability. The mission recommended institutionalizing structured decision-making by implementing fixed schedules for Monetary Policy Advisory Committee (MPAC) and Financial Stability Advisory Committee (FSAC) meetings, followed by policy-setting Executive Board sessions. These efforts should be supported by the introduction of forward-looking publications, including a Monetary Policy Report (MPR) and an enhanced Financial Stability Report (FSR), ensuring more structured and transparent communication. To further strengthen engagement, the report emphasizes the importance of proactive outreach and capacity-building programs to improve public understanding, foster market confidence, and reinforce CBvS’s credibility. Implementing these measures will enhance transparency, facilitate clearer communication of policy decisions, and help regain public trust in the CBvS’s commitment to monetary and financial stability.
Keywords:
monetary policy; financial stability; central bank communication; decision making frameworks; transparency and stakeholder engagement; Suriname.; monetary policy decision-making; IMF's Monetary; market expectation; deputy head; long-term objective; CARTAC mission; Financial sector stability; Monetary policy communication; Price stabilization; Open market operations; Inflation
Cover Technical Assistance Reports
Barbados: Technical Assistance Report-Stress Testing
International Monetary Fund. Western Hemisphere Dept.
and
International Monetary Fund. Monetary and Capital Markets Department
The IMF Caribbean Regional Technical Assistance Centre (CARTAC) conducted a technical assistance mission to Barbados from July 31 to August 11, 2023. The mission aimed to strengthen the stress testing framework of the Central Bank of Barbados (CBB) and the Barbados Financial Services Commission (FSC) by enhancing their solvency stress testing (ST) capabilities for banks and credit unions. During the mission, the team worked closely with authorities to develop two customized stress testing tools, allowing for multi-factor and multi-period solvency assessments under various macroeconomic scenarios. These tools integrate explicit macroeconomic projections and newly developed credit risk satellite models, enabling a more sophisticated approach to evaluating key financial stability indicators, such as non-performing loans (NPLs), capital adequacy ratios, and profitability metrics. An illustrative stress test was conducted using recent financial data to demonstrate the tool’s application. The mission also focused on capacity building, providing hands-on training to technical staff at CBB and FSC to ensure the effective use and long-term sustainability of the stress testing framework. Discussions emphasized the importance of regular stress testing exercises to monitor systemic risks and enhance financial sector resilience. The mission recommended that CBB and FSC conduct semi-annual stress testing exercises, with results incorporated into the Financial Stability Report (FSR).
Keywords:
Stress testing; Financial stability; Systemic risk; Banks; Credit unions; Barbados.; economic analysis Department; CBB governor; FSC manager; FSC chief executive officer; CBB deputy governor; Credit bureaus; Loans; Nonperforming loans; Credit; Capital adequacy requirements; Global; Caribbean
Cover Technical Assistance Reports
Republic of Uzbekistan: Technical Assistance Report-Macro Stress Testing of the Uzbek Banking Sector
International Monetary Fund. Monetary and Capital Markets Department
The Technical Assistance (TA) mission, conducted in Tashkent, Uzbekistan, from August 21 to 31, 2023, assisted the Central Bank of Uzbekistan’s (CBU) authorities in developing their stress testing (ST) framework for the banking sector. This TA was the second of a multi-mission TA project following on the recommendations of the 2020 Financial Sector Stability Review (FSSR). This mission duly assessed the progress on the implementation of the previous mission (2022) that had introduced a multi-horizon ST tool based on explicit macroeconomic scenarios along with a credit risk satellite model. The purpose of this mission was to build on the earlier work and further strengthen the capacity of the Financial Stability Department (FSD) staff to carry out stress tests and thus assess the resilience of the Uzbek banking system. The high-level objectives of the mission encompassed improving performance of the credit risk and profit & loss satellite models, providing training on ST scenario design with working procedures for cross-departmental collaboration, and setting up guidelines to operate, maintain and improve the ST toolkit and communicate the results with senior management and general public.
Keywords:
Stress testing; macroprudential stress testing; credit risk; solvency risk; bank solvency stress testing; scenario design; financial stability; financial stability report; satellite models; Uzbekistan; Central Bank of Uzbekistan.; operating expenses; IMF's Monetary; donor partner; request of the Central Bank of Uzbekistan; Uzbek banking system; Nonperforming loans; Loans; Credit; Mortgages; Global
Cover Departmental Papers
Digital Transformation in the Gulf Cooperation Council Economies
Fozan Fareed
,
Sidra Rehman
,
Ran Bi
,
Jeong Dae Lee
,
Yuan Gao Rollinson
, and
Tongfang Yuan
The Gulf Cooperation Council (GCC) countries have pursued ambitious digitalization strategies as part of their broader economic transformation agenda. This paper provides a thorough review of the GCC's significant acceleration in digital transformation, particularly since the onset of the pandemic, highlighting progress in digital infrastructure, GovTech (government technology) maturity, and fintech activities. By constructing a novel composite index—the Enhanced Digital Access Index (EDAI)—and benchmarking the GCC's achievements against those of advanced and other emerging market economies, the paper finds that the GCC, on average, has closed its gap with AEs on the overall EDAI, with strengths particularly in digital infrastructure and affordability. Based on a global sample, the paper’s empirical analysis highlights a positive correlation between digitalization advancement and enhanced financial inclusion, strengthened banking sector resilience during crises, improved government effectiveness, and faster corporate sector recoveries following economic downturns. To complement the sectoral analysis of the impact of digitalization, the paper also examines the relationship of economic growth and resilience with economy-wide digitalization and find a positive association. Our findings point to additional economic gains from further advancing digitalization in the GCC, which would require comprehensive strategies to further leverage digitalization to enable a more effective and transparent public sector, balance opportunities and risks associated with fintech, enhance digital skills and digital adoption, with adequate social safety nets and appropriate training to strengthen social protection and labor market inclusion, and create an enabling environment to further digital penetration.
Keywords:
Digitalization; GCC; Resilience; Financial Inclusion; GovTech; Fintech; GCC country; GCC state; GCC labor force; artificial intelligence strategy; GCC's progress; Public sector; Global; Middle East